Why VC is a Ponzi Scheme Today

Thank you, Harry. It’s a pleasure. We were just talking about this beforehand, but I think the last time we did the show together was almost ten years ago.

We’re launching Asylum this week. I decided to do a completely insane thing and start an entirely new venture firm about ten years into Notation. I ultimately felt like Notation was built for a moment in time. It was the first pre seed firm in New York and one of the first pre seed firms in The US. And, ultimately, I did not feel like it properly represented who I am and where I think the next ten years or fifteen years of venture go. You know this, Harry. A venture firm is a a very personal expression of a GP or a set of GPs, and there’s a new mission.

$55,000,000 fund. We write 500 k to $2,000,000 checks. My mission is is personal. I started my first job out of college was at Lehman Brothers in 2007. It went bankrupt. I joked that the only good day at Lehman Brothers was the day it went bankrupt. I found startups in New York shortly afterwards around the financial crisis, and it was everything that Wall Street wasn’t. It was creative, and it wasn’t all about the money. There were these young kids building all these creative new things on the Internet.

It was kind. It was nerdy. So everything that Wall Street was. I fell in love with it. Fast forward to 2021, I felt like basically all the same people from Lehman showed up. Highly transactional, all about the money. There was no real art or creativity, very private equity like finding the company, dressing it up a little bit, handing it off to the next guy. And I was about as unhappy as I was in 2021 as I was working at Lehman Brothers in 2007. The big firms have gotten huge.

They have gigantic AUMs, as you know. And so we now internally at Asylum, we call them the big banks. Not all that different than Lehman and Goldman and the others back in the day. My mission now is to provide an alternative to founders, to the big banks, and ultimately, over the next five, ten, fifteen years, a gigantic thorn in the in the side to the big banks. That’s my new mission. It’s very personal. Dude, I

So, like, I have this view that every particularly private asset class has its own version of a ponzi scheme. The hedge fund ponzi scheme. The hedge fund ponzi scheme is you take a lot of money. You take insane amount of risk. You double that money one year. You take your 20% of the bonus in cash. The next year, it goes to zero, and you don’t have to give that money back. That’s the hedge fund Ponzi scheme. And we saw this, by the way. I saw this at Lehman Brothers back in the day.

Traders, you’re gambling with someone else’s money. So you’re incentivized take to take as much risk as humanly possible with the bank’s money. You take a ton of risk. You get a $20,000,000 bonus that year. Great. You lose all the money next year. You get fired. You go across the street to another bank and do it again. I I think hedge funds are sort of a similar proposition. The private equity scam is like we probably all know this is like, you can invest in a company. It doesn’t actually matter how well that company does.

You can take a lot of money out of that company, and if it goes bankrupt, it doesn’t matter. The venture ponzi, you raise a fund. You take 2% management fees for ten years guaranteed. It does not matter how well that fund does, and you’ve taken 20% of that fund and put it in your pocket. That seems absurd to me. It’s obviously the main driver of incentives throughout the venture industry. You don’t have to make a single dollar, and you take 20% out of the capital raised, and you put it in the pockets of mostly employees that work there.

The other thing I would actually say is I’ve never understood why venture doesn’t have a hurdle that exists in most other private asset classes. You can do reasonably well and not even do as well as the Nasdaq and the S and P, and you’re still making money.

A budget system? That’s a really good question. I I think a lot about how many VCs would be doing this if they had to actually pay back the management fees if they didn’t make any money. Like, how many VCs would be confident enough?

Yeah. But the the job is to make money. The job is to perform. Right? So, like, if you’re But if I said to a nonfinancialized

If you have a long track record of producing returns for your investors, I think you have arguments to charge a certain rate. Like, I mean, you can take renaissance. That’s probably a very good example. I think famously, they had they charged, like, 70% carry and produced, by the way, like, net to LP is, like, 60% or whatever, some insane rate of return. The reality is, like, most venture firms don’t make money.

the best talent. We did. Present present that to LPs and don’t take a single dollar above it. Is that what you did? I don’t pay myself at Asylum. You don’t pay yourself? I’m putting every single dollar into the into hiring people and building the firm.

I can. So, like, we don’t talk about this often, but, like, the notation returns have been extremely good. First couple funds in particular made a lot of money. And so I do have that luxury. I have the luxury of taking that and actually investing it back into a firm. I would argue that over time, even wealthy folks that have made a lot of money in this business or venture don’t put any money into their firms. Did you charge premium carry as a result? We charged 20% carry.

GP commit? Meaningful.

Like, whatever. It’s that’s a funny thing. Right? Because it’s, like, it’s hard to actually ask. Like, you could ask for people’s tax returns, like, sort of, like, understand roughly, like, what they make and how much they’re worth and then sort of back out from that. That may be a valid diligence.

What do you think?

Yeah. So if you extend the analogy to the big banks, large banking institutions are mostly commodity products, that are very low margin. I’d argue the same is true for the large venture firms. I’d actually maybe make one exception. I think the one exception for me would probably be Founders Fund. What I’ve come to believe in ventures that the only thing that is actually differentiating is actually standing for something meaningful. Sector, stage I mean, Notation was a pre seed firm. We were the first in New York.

We had an advantage in New York because we were early in the only pre seed firm from 2015 to 2018. I think pre seed as a concept is it’s no longer unique. It got eroded away. It got arbitraged away. I think for the most part, stage sector, geo focuses, these things get arbitraged away. They are not sustainable positions in venture, in my view. The only sustainable position is actually standing for something meaningful. Standing for something meaningful, by the way, means that as many people are not gonna like that thing as they are gonna like that thing.

That’s actually what standing for something means. And, you know, there’s a few founders fund. Maybe Sequoia stands for excellence. I don’t know if that’s differentiating enough, but, like, I I think that’s the only way to actually take some margin and actually have a competitive advantage at at large scale. Small scale, we can talk about this endlessly, but, like, for the right small scale firms, those firms will continue to produce very, very, very good returns for a very long time. I

I think that’s true for the average seed fund or pre seed fund for sure. We’re not, I don’t think, doing this to be average. If I’ve learned one thing over the last twelve years or thirteen years investing is that the only way that I personally have ever made money, and I think this is probably true for most of early stage investing, is to invest in something that no one cares about yet. That’s it. And the things that no one cares about yet are not 25 post.

They’re five or 10. That does not go away. I’ll give you some examples. Like, the the way this works, right, is that I I think the way that this basically works is, like, there’s a new category as defined by a company. Some VCs were in that company. The big firms then say, holy shit. We missed that company. We need to go fund lots of similar companies like that. They put out a siren call, and then all the little firms run around town to try to go find that company for them.

They’re all playing catch up. They’re all playing this weird game of momentum and copycat. It’s not gonna make you money. So, like, that’s happening in AI right now. OpenAI is huge. Everyone’s trying to play catch up. Yes. Every single AI company is gonna be 25 or 30 posts. You should have been making these investments years ago when no one cared. That’s the whole job. That is the whole job of a small firm is to actually take risk on markets and companies that no one cares about yet, that they may care about in three, five, seven years, or they may not.

That’s the whole job. And that’s not going away, and you will continue to be able to make lots of money and work with amazing founders just doing that.

look today, though, Nick I’d much rather do momentum investing or consensus investing in the winners at series a, series b. If I’m trying to pick the winner in a very crowded competitive category, I’d like to see some some data across how the teams operate, across how the companies. I think I think the really interesting part there is actually series

completely If you’re doing really true early stage investing I hate like, for example, like, okay. We see an idea. It’s a pretty good idea. Our assumption now it’s a pretty good, well understood idea. Like, the market will understand this. Our assumption now is there are at least 10 to 15 competitors to that company. Maybe we know a few. It makes me really uncomfortable to invest in a company where there’s 20 others that are doing the same thing that I don’t even know about. I don’t even know who they are, where they are, how good the teams are.

What I love investing in is companies. I wouldn’t describe it as contrarian. It’s not like the market is like, we hate this thing. Actually, the market is we just don’t care. This doesn’t seem like an interesting big opportunity. Like, we just don’t care. My bet is that for some subset of those companies in the next three to five years, people will care. The venture market will care. The market will care. At least that’s the only way I’ve figured out how to do this. The other advantage of that, by the way, is that the founders are real.

Right? Like, if a founder is build obsessed with a little thing that no one else cares about, like, that’s real. It’s much easier to figure out what the what that founder’s incentives are and why they’re doing that thing. I I think for independent minded investors and for independent minded founders, it actually does not matter how much competition there is in the market. You need to find the things that no one else cares about yet.

fives.

the average inventor

I totally agree. And and in the sense that I mean, so I was actually looking the other day, I was looking at I was looking at Cambridge Associates data. You know, they send out their quarterly thing. And I was looking back to Notation one was a 2015 fund. So I was looking back to 2015. The top quartile, okay, the top quartile, the best 25% of venture firms from the 2015 vintage have not returned their investors all their money. As we’re nine years in, the top quartile has not given their investors their money back.

So, yeah, I if you think about the 2021 vintage, I think a one x fund will be top quartile. I think returning your LP’s money on almost any time frame will be will be top quartile. So in that sense, probably 70 I would guess 75% of the funds raised in 2020, 2021, won’t return money. So I I think there’s LPs that are probably making a lot of decisions that are not specifically related to financial performance. And then quite frankly, sovereign wealth is a totally different beast.

There there are people perhaps there that are getting incentivized meaningfully, but sovereign wealth will invest for lots of different reasons, including very strategic reasons that also have nothing to do with financial returns. So you you have a market where a lot of the participants are not making rational financial decisions.

I don’t think they’re going anywhere. I think they’re probably in too big to fail. Do you you that you

I think there’s always another LP to replace those folks even if they go away. I think they are big enough brands. There’s enough money globally. Maybe a couple of them will go away. Right? Lehman and Bear Stearns went bankrupt or got swallowed up by the others. But the big folks, the Goldman equivalents, Morgan Stanley equivalents, I won’t name specific names, there’ll always be another dollar for them. So I I don’t think they’re going anywhere, and I think this is our new reality. Now I also think they provide an incredible opportunity for funds.

Asylum would not exist without the big banks. Okay? So, like, the best comp that I often use, and we’ve we’ve talked about this, Harry, but I think the best comp is a 24. A a 24 could not exist without the rise of the massive Hollywood movie studios. They were built in reaction to that. They were built as an alternative to that for creatives and artists, and they did a few things. Right? They gave artists full creative control. They had a very clear sense of taste, and they treated the artist like a actual human in stark contrast to the big Hollywood movie studios.

They crushed it. I think eight twenty four has been the most successful studio in many decades. I’m actually grateful for the big banks in venture. I actually don’t want them to go away because that they they actually provide our our opportunity. They provide us an opportunity to provide an alternative to founders to that system. So artists have full control.

I I don’t think that’s a problem. I think it’s it’s it’s it’s ultimately, like, are you backing the right founders? I I

that’s quite quite

you get a lot of bad behavior. Right? But, like, there’s It doesn’t think I have

I disagree.

thinking about this. We we have not done this yet, but I’ve been strongly thinking through, like, whether or not we should just be buying common shares rather than preferred, like the vast majority of investors in the market. My view is that, as you know, there’s a few that really matter. There’s a few in every fund that really matter, at least matter from a financial performance perspective. When they really matter, the common is is exactly the same as the preferred, is exactly the same as the preferred two, the series a.

They’re all worth the same. They get acquired or they go public. Those are the ones that really matter. Why are we putting all this structure and fighting over different structure and cap tables for ultimately situations that are not gonna actually matter? Because they

actually

I I have not seen that in my experience. Here’s the debate in my head. Right? Like, you are right. Right? So here’s one example of being able to get some return, right, from a company rather than having it be a zero with common. Like, that allows you to recycle back into the into the fund. Right? So this is, like, this is one reason why, like, we haven’t done it yet. The debate in my head is if we just invested in common, would that on the margin help us better align with a founder, win an investment or two that maybe was on the margin we might not have, and be in the right companies?

Will that offset some of the capital maybe that we didn’t get back to be able to invest in the fund? I don’t know the answer to that, but I think if the answer is yes, then we should just be buying common.

My experience over the last ten years, there’s the legal agreements don’t matter. They don’t matter. There are always ways. There are always ways for an investor to quote, unquote screw over a founder or for a founder to screw over an investor. It goes both ways. The illegal agreements do not matter.

Totally. Every single time a company gets acquired, there is a dance, right, between how much goes to retention for the founders and how much goes to the cap table. Almost every time, unless it’s like a true at scale company. And so you are hoping, relying on the founder to treat you well, to do the right thing. And and founders many times, it goes both ways. Founders are relying on investors to do the right thing. So my view is if you are in situations where the founder is doing the wrong thing, right, the legal agreements are not gonna help you out, and you have actually made a bad disinvestment decision at the very beginning to have worked with someone that won’t do the right thing.

I I hear you, and and I think in some ways, I value the way in which we come to that conclusion and the communication through it more than the actual decision. So, like, if a founder saying calls me and says, hey. Look. Here’s the situation. It’s a difficult decision. Like, I’m not sure there’s a right and a wrong. Can we talk through it together? Can I hear your perspective? As long as as long as there is an honest, real, transparent conversation between a founder and investor, there’s gonna be over the course of a life lifetime of company.

There’s gonna be lots of different friction. There’s gonna be lots of disagreements, and there’s gonna be lots of opportunities to either destroy trust or or improve trust. So my view is that as long as there is a way to communicate through it and to listen to each other honestly and to come to a place where both people feel like they’ve been heard, their perspective has been heard, and there’s been a decision made that actually represents as best a founder can all the different parties. I’m totally fine with that even if I’m not getting the best deal.

These are not contemplated in legal agreements. So I’m like, all the legal agreements don’t matter. Maybe preferred in common doesn’t matter that much. And really, all we’re talking about is trust. An honest

found I found that more often than not, a real truthful conversation between a founder and an early investor where there’s actual real trust often leads to a place where the shooting in the head at the end of that doesn’t happen. Have

ever got

Definitely.

Definitely. I mean, I’ve been doing this a long time more than once. There’s one that comes to mind around, acquihire that you kind of talked about many years ago. We actually introduced the portfolio company to the acquirer. It was understood the cap table would sort of get taken care of. Like, not again, not make any money, but, like, get a little bit back. And at the last minute, the deal was changed. So the investors got nothing, and the founders got really big retention backers. I think there was probably an opportunity for the founders to push back.

Look. It did not end up moving the needle for us. And so, like, I I generally move on from these things pretty quickly. I think it could have been handled differently, and, I I won’t forget it. I’m

Yeah. Or, like, I think VCs will try to talk founders out of agreements that they’ve made. I mean, our job is also to win. Yeah. But I think there’s there’s a difference between short term and long term games.

Yes. You wanna win. I wanna win. We’re also, I think, playing a very long term game. I’m playing a very long term game. Decades long game. There’s also a mentality. I think Silicon Valley is another banker comparison. I think Silicon Valley has become very zero sum thinking. I think that is very representative of banker thinking at Lehman Brothers in 2007. Every single thing that happened there was someone won, someone lost. Why has it become that? I think there is there’s more money. There’s money in this, and I think it’s become all about the money.

I think winning has become all about the money. I think there’s many VCs that are playing a short term game to maximize profit in the short term. I would say most of the market is doing that. And so you might say that’s the optimal decision. Now there’s there’s many folks that I will never work with again. And maybe that doesn’t matter to them, but, like, I think it will. There will be a company. There will be an opportunity where someone wants to work with a company that we work with.

We’ll never work with them again. There’s more than a handful. Kind of speaking of

Actually, it’s very simple. What is the business model for large venture banks? Deployment. Yeah. It’s raise as much money as possible, get that money out the door as soon as possible, and then raise as much money again and rinse and repeat. Your junior partner at these big firms, a VP at Goldman equivalent, they are compensated and promoted based on money velocity, not money returns. What’s an ideal company for that model? It’s a company that requires insane amounts of capital. Like, the foundation models are like a a big big VC firm’s dream.

They require they literally require billions and billions of dollars to go buy effectively NVIDIA GPUs, and that’s a dream. And so I believe that the big venture firms defense tech is great. Defense tech, those companies are gonna be insanely capital inefficient. They’re gonna require insane amounts of money. My view is, like, American Dynamism and Defense Tech as a theme. It’s just a great category for huge venture firms to be able to deploy insane amounts of money so that they can go raise their next fund. Does this not shake out in return so eventually?

The returns need to just look like about the Nasdaq. It just needs to be it just needs to be roughly in line with the Nasdaq for them to continue to raise. And by the way, that’s true for all of venture. That’s true for all of venture, which again is why how many venture firms actually have alpha in their returns. It’s just literally beta to the Nasdaq. And by the way, it’s a way worse investment. It’s illiquid. It’s much riskier than investing in the Nasdaq. I think as long as they perform in the range of the Nasdaq, venture firms will continue to raise money.

for me to convince founders to do anything else. I’ve had a similar experience in that, again, going back to the the way I believe really true early stage venture has to be done. Right? You need to find the things no one else cares about yet. Our largest outcomes, realized outcomes to date, have been a company called Bison Trails that was sold to Coinbase for a a huge amount of money. I don’t know if they’ve ever reported this and is now Coinbase Cloud. Did that

Many, many times.

I tell this story often. This is a an ideal investment. Right? And and also lucky and also lucky. But Bison Trails was the first crypto staking company. At the time, there was one crypto network that was a proof of stake network. It was an early crypto project called Tezos. If you had done the TAM analysis there, you would have found the global TAM for Bison Trails was probably a couple $100,000 a year. If they got a 100% market share, they would have made been making about $200,000 of ARR that year.

Okay? Eighteen months later, they were doing almost 30,000,000 in revenue, and they were a monopoly on the market. Tezos proved that proof of stake compared to proof of work was a much more efficient way to run blockchains. And within eighteen months, there were 40 or 50 blockchains that either had changed or had launched with a proof of stake consensus algorithm rather than proof of work. So you’re investing in a company where no one cares. The market is tiny. How big was the round that you did?

It was a small pre seed. We we we effectively helped the company get going. We actually the same founding team, we had actually previously all as a basically a side project built a Bitcoin mine together in Oregon. And so there was a long history. I’d actually backed their previous company. There was a long history of working together.

Yeah. We don’t we don’t talk about this stuff that often. I mean, you can you can whatever. I don’t mind people knowing. But, anyway, Bison Trails one example. There there’s been a couple others like Bison Trails. I’ll salon we we invest in the Salana Series A. Kind of similar. No one cared. What fund was that in? That was the same fund. There was no competing over to get into it. Anyone. So my view is that if you’re doing the hot five on 20 fives, the 10 on thirties, whatever, you’ve gotta know that that that’s consensus.

The market already believes what you believe, and you’ve gotta really believe that one is gonna be the winner against inevitably lots of competitors that are doing the same thing because it’s already well known in consensus. So if you have a strong belief that that’s the one, then that can work. In my history, I have never done a good job figuring that out. I’m much more comfortable investing in a thing. By the way, in every fund, I get, like, 25 of them. So I can be wrong a lot.

Like, I could be wrong almost all of them. Right? We just need one or two or three in a really great fund where, oh, that thing that no one cared about turned out that, like, people care.

I would really like to understand it if I can. I would really like to understand the thing. I I really wanna understand what is the question. What is the thing that we believe about this market or this product or this category that the market doesn’t care about yet? So Bison Trails is such an easy example. Right? It’s we believe that this form of mining and doing consensus on blockchains, proof of stake, is as good or better than the existing way to do it proof of work in the market.

Yeah. Then I I think that’s a much hard I think that’s a much harder investment to make.

I’ve made founder bets. Right? But the founder, those founders will often do a really good job of explaining it in simple terms. So I I think if you really don’t understand it, if you really can’t understand it, in some ways, like, it’s the founder’s job to explain it in really simple terms. If they can’t do it, even for really technical things, like we’ve invested in some bio companies and other I’m not a scientist, but, like, those founders, they can explain that thing to anybody in simple terms, and they have to.

It it it can’t just be for the investor. It has to be for employees. It has to be for customers. You have to be able to explain the special unique thing that you’re doing that no one else understands yet. If you can’t explain that and make me a dummy understand it, there’s a bigger problem than just me not understanding it.

I’ve never found that any investment we’ve made ever I’ve never seen any VC be truly the difference between success and failure of a company. Period. You can maybe help around the edges. Would Coinbase not have been successful if they hadn’t take money from Andres and Horowitz and USB? No. I think they would have been just as successful. I think either no doubt those firms helped around the edges. They weren’t the distant difference between success, failure of that company.

That may have helped maximize financial returns. That was not the difference between success and failure of that company.

Yes. But sure. Sure. But, like, that enterprise value would have been created regardless. The question is, who does that enterprise value go to? So that might have been a very financial financially savvy decision around accruing more of that 165,000,000,000 in enterprise value. It was not the difference between whether or not that company would get to that value.

Yeah. Let me let me say one more thing on VC value add, and it’s related to that question. And I think that there’s different ways to define it. What I don’t think moves the needle is services. I don’t think that services, a business development team, a recruiter, etcetera, are actually gonna be the difference between success value of a company. Now I do believe that there is value. You mentioned Doug Leone. I do believe there is value in having a really trusted partner or people around the table for a founder to make good decisions both for the company and financial decisions.

Now that doesn’t just need to be VCs, by the way. That can be other founders. That can be independent board members, but it can sometimes be VCs. Right? It can be Doug the owner. I think one of the most important we talked about this earlier. I think one of the most important pieces is there’s a financial component to venture, and I think there’s a trust component to venture. I think having a track record of building real trust with founders is extraordinarily valuable to to you and to the founder.

Now it’s really hard to pitch trust, actually. Right? Like, whenever you hear someone being like, just trust me, you’re like, holy fuck. I’m not gonna trust this person. Right? Like, the just trust me is terrifying. In other words, it’s hard it’s much easier to say, look at our team. We have a 100 business development executives here. It’s much it’s much harder to say, like, you should work with me because I’m highly trusted. We’re gonna do the right thing, and that’s really important. Like, it’s not as good of a sound bite.

I also think it’s a way to just not do the work. Like, just don’t bother me. You you know, you need some help with, like, a BD thing. Don’t bother me. Go talk to the BD people.

In my experience, actually, it’s a smaller percentage that actually destroy. When I think about lots of VCs in the community that we work with, like, there’s not a long list of folks where I’m like, oh, this person is gonna be, like, dangerous to the company. I actually think the the biggest issue is just not caring. That’s the thing that actually bothers me. They just don’t care. Don’t care about the people. Don’t care about the investment. Oh, it’s 1% of my fund. They just don’t care. I agree with you.

You cannot do everything, and you have to prioritize. You can if you don’t make that many investments. You can’t do everything if you make a ton of investments every year, which the average venture firm does.

misaligned in your eyes? I I mean, I can speak for the what I view as the median in venture. And, certainly, I think you see this in the big the big AUM firms. I think there are many companies in the market that could get to where they’re going and win with significantly less money. And what that means is that the founders and the early investors own a lot more of that company. I think there is a perception that you need to raise vast amounts of money to win.

VCs are obviously incentivized for founders to think that or to be scared of that. Some ways, it’s a threat. And and there’s all sorts of weird incentives in the middle. Right? It’s I’m raising my fund. I need to show some markups, trying to get a promotion at a firm. I need my companies to raise money. Some companies just take time. Some companies would be better served to focus on building a business rather than raising money.

Again, if you have a very long term view and you don’t care about short term markups, you don’t care about raising the next fund within two years, I think you can play different games with companies where you’re thinking about actually derisking the company, proving experiments, building a real business model rather than focusing on how to raise the next round. I think NDVC, has done a great job of this over the years in price. I think Slow is talking a lot about this, and I believe it.

There are a number of companies in our portfolio over the years that haven’t raised that much money and are just quietly crushing it.

Yeah. That makes no sense. Companies have gotten so cheap to build. You don’t need this much money. Do you think that everyone is an entrepreneur? No. We’ve talked about this. I think there’s another, Silicon Valley meme where everyone should be a founder. Just everyone. I I think similar to, like, the meme back in the day where everyone needed to learn to code. We’ve been playing around with different taglines at Asylum, one of which is don’t do this. I think that might get cut, but, like, the basic idea is that people say this, but I don’t think they really internalize it.

Like, building a startup is truly awful. It’s like a truly, truly bad experience, and it will ruin your life basically in various different ways. And by the way, that’s if it goes well or if it doesn’t go well. Either way, goes well, problems get harder, huge teams often, lots of capital raised, lots of pressure. It is going to take a lot out of you. And I’ve seen this through relationship breakups, founder breakups, divorces, bankruptcies. Like, what I will say is after many years of doing this, I have more respect for the founder journey than I ever have.

Like, it actually even just really thinking about it makes me, like, a little sick to my stomach. Like, actually physically sick. I’m like, this is gonna be a truly awful experience. So why we go back to obsessed? So why would you do that? Why would anyone do that? Because they’re obsessed. Because they need to do this thing. Because they will be up all night every day thinking about this thing. There’s a problem that they just can’t not do. Those are the people that should start companies for sure, and I’m deeply grateful to those people that do.

I think our job in addition to trust, by the way, is to make that experience just a little less shitty. Like, it’s that simple. Build trust with the founder and try to make what is gonna be an awful experience. And I I think our job is to be a steady hand, a place of calm, a place of trust, and to try to create an environment in which the founder can do their best work. I think that’s our job, and that’s about it.

My view has always been trying to find alignment with the founder. Now when a founder is selling a company, right, you you’re selling with them. Right? So that’s that’s aligned. We have sold shares in founders’ companies over the years a number of times. We will only do that when the founder is selling. But I will say, when the founder is selling, we almost always do it. I wanna be aligned with the founder. I think there are many investors that are that are actually terrified to have those even those conversations, which also again goes back to honest conversations and trust.

My approach has always been if I built trust with the founder, if they are choosing to sell shares in a round, I give them a call. Every situation, we’re basically the first investor in the company. And I say, hey. Look. You’re selling a little bit. Hey. It would be really helpful and valuable to us if we could sell a little bit alongside. What if they And by the way, valuable to us and to our investors, and it allows us to continue to do what we do.

We never sell all of it. That would be, I think

fair. I think that’s fair. There there’s been situations in which it’s very small amounts. I’m I’m mainly talking about, like, series b or c when the amounts become meaningful.

Hey, man. You can bring that you can bring those learnings for you forever. Forever. I think my two biggest mistakes at Notation over the last, call it, ten, twelve years, and, you know, I was I was an investor at Betaworks before that. I think my mistakes tend to be getting antsy. So I haven’t made an investment in a while, and I start to think about that and it gets in my head. And now I’m much more aware of it, but I don’t make many investments a year.

I make three to five investments a year. And when that happens and sometimes those come in chunks. So, like, there’ll be long periods where I haven’t made an investment. I think it is human nature to start thinking, am I not seeing the right stuff? Am I overthinking these things? What are my LPs gonna say? What do they think I’m doing? Right? Like, these are toxic toxic little people in your head. I’ve learned to listen to them and understand where I’m at and to be patient. So I’ve made some mistakes there.

I think I’ve made some mistakes mistakes around we talked about valuation. I think I’ve made some mistakes about being too precious around valuation. There’s a big difference between a $5,000,000 post and a $25,000,000 post. Like, that I think you need to really think about and consider. If it’s five or eight and it means you potentially, you know, winning the investment or co leading or whatever, you don’t need to overthink those. And I think there was a there was a stage in my career earlier on where I got too into the minutia around, is it five or five and a half or 10 or 11?

Like, these small differences do not matter long term. If it’s a two x or a four x or a five x different, five or 25, then, like, that matters. And you should, like, give that some thought. And I do think you need to have the tool in your tool belt to be able to pass on valuation.

But I’m saying the very early days of notation I was about to say, like, shit. These are rare these days. No. These are rare these days.

We’ve talked about various version of the of this, but I believe actually the the less institutional and banker like you can look to founders over the next decade, the more likely you are to win. So I think that most of venture is deeply focused on becoming institutional. It feels more professional. The more you can avoid that in the next ten years, the better. Which venture ambassador do you most respect and learn from? This has changed over time, but but right now, probably Andy Weissman and Bryce Roberts.

I think they represent many of the things that I just described about being the alternative to the big the big AUM firms. They think independently, and they have the guts to be themselves and do it do it their own way. Most contrarian or unorthodox advice for founders listening. Don’t do a start up unless you absolutely need to and find a person that you truly trust to either do that with as a cofounder or with your first investor.

Selecting, sourcing, and servicing in Why? That From a selection perspective, I think that I’ve twelve or thirteen years of data now of hands played that I can go back to, and I think I’ve learned a thing or two there. And I also think I’m just more patient than 90% of VCs in the market. What’s been your biggest miss, Nick? Right now, because they’re so hot, I miss both Hugging Face and Runway at pre seed, which is painful that both both New York companies absolutely represent the thing I’m describing, which is they were building things before anyone actually cared.

Great teams. To be fair on Hugging Face, it was, like, a very different business. I met them when they were a avatar app. So that one was a that one was a pivot. Runway was also a little bit of a pivot. I mean, they were both sort of pivots, but they were they were poking around a market that was genuinely interesting. Like, AI had been rapidly evolving even before LLMs, and those would have represented, I think, really interesting bets on how AI might evolve in the years to come.

conversation, like, why do why do I hate banks so much? Why do you hate banks so much? There’s actually a very per really personal story here. Yeah. Go on. I grew up in New York City, and, my mother worked at an investment bank. She passed away, actually, when I was a teenager. And I think in many ways, I went to go work at Lehman Brothers to feel closer to her. And, ultimately, what I walked away with is I couldn’t help but think that there was no possible way she wasn’t mistreated or dehumanized over the course of her career at these places.

And, ultimately, I was obviously deeply disappointed. I went there to be closer to her, and I actually came away feeling like, in some ways, we both must have been mistreated. And I think that has likely led to my twenty year revenge arc now against bankers and these big banking firms because I think ultimately they do a disservice to the people working in these places.

Sorry I went a little dark for a few years there as I was sort of planning my new thing, but it’s been so good to reconnect. And I’m I’m so grateful that you offered me the opportunity to do this.